Lou’s preferences over pizza (x) and other goods (y) are given by U(x, y) = 2xy2. His income is $200. a) Calculate his optimal basket when Px =4 and Py = 1. b) Calculate his income and substitution effects of a decrease in the price of food to $2. c) Calculate the compensating variation of the price change. d) Calculate the equivalent variation of the price change.
Lou’s preferences over pizza (x) and other goods (y) are given by U(x, y) = 2xy2. His income is $200. a) Calculate his optimal basket when Px =4 and Py = 1. b) Calculate his income and substitution effects of a decrease in the price of food to $2. c) Calculate the compensating variation of the price change. d) Calculate the equivalent variation of the price change.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics
Section20.2: Consumer Equilibrium And Demand
Problem 1ST
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Lou’s preferences over pizza (x) and other goods (y) are given by U(x, y) = 2xy2. His income is $200.
a) Calculate his optimal basket when Px =4 and Py = 1.
b) Calculate his income and substitution effects of a decrease in the
c) Calculate the compensating variation of the price change.
d) Calculate the equivalent variation of the price change.
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